First published on Monday, 25 July 2011 and last verified on Tuesday, 28 February 2012

Commercial Arbitration

Malaysia

Sanjay Mohanasundram

Kadir Andri & Partners

    Infrastructure

  1. 1.The New York Convention
    Is your state a party to the New York Convention? Are there any noteworthy declarations or reservations?

    Yes, Malaysia is a party to the New York Convention. The following declarations or reservations apply:

    a. Malaysia will apply the Convention only to recognition and enforcement of awards made in the territory of a contradicting state; and

    b. Malaysia will apply the Convention only to differences arising out of legal relationship whether contractual or not that are considered commercial under national law.

  2. 2.Other treaties
    Is your state a party to any other bilateral or multilateral treaties regarding the recognition and enforcement of arbitral awards?

    Malaysia is a party to the International Convention on the Settlement of Investment Disputes between States and National of Other States (ICSID) 1965 which came into force in Malaysia on 15 March 1966 in relation to the recognition and enforcement of arbitral awards.

  3. 3.National law
    Is there an arbitration act or equivalent and, if so, is it based on the UNCITRAL Model Law? Does it apply to all arbitral proceedings with their seat in your jurisdiction?

    The Malaysian Arbitration Act 2005 is based on the UNCITRAL Model Law. The Arbitration Act 2005 applies to all arbitrational proceedings with their seat in the Malaysian jurisdiction.

  4. 4.Arbitration bodies in your jurisdiction
    What arbitration bodies relevant to international arbitration are based within your jurisdiction? Do such bodies also act as appointing authorities?

    In Malaysia, the institutes for arbitration are the Kuala Lumpur Regional Centre for Arbitration and the Malaysia Institute for Arbitrators. The director of the Kuala Lumpur Regional Centre for Arbitration has the power to appoint an arbitrator when parties are unable to appoint one.

  5. 5.Foreign institutions
    Can foreign arbitral providers operate in your jurisdiction?

    Yes. It is quite common for foreign arbitral providers to operate within Malaysia, subject to the agreement between the parties as to the selection of the foreign arbitral providers.

  6. 6.Courts
    Is there a specialist arbitration court? Is the judiciary in your jurisdiction generally familiar with the law and practice of international arbitration?

    There is no specialist arbitration court in Malaysia. The High Court of Malaya is familiar with the law and practice of international arbitration as they have expertise in the enforcement of arbitration awards. When there is a dispute arising in relation to the validity of the awards, the parties would refer the case to the High Court for review.

    7. Agreement to arbitrate

  7. 7.Formalities
    What, if any, requirements must be met if an arbitration agreement is to be valid and enforceable under the law of your jurisdiction? Can an arbitration agreement cover future disputes?

    Under Malaysian law, an arbitration agreement, which must be in writing, may be in the form of an arbitration clause in an agreement or in the form of a separate agreement. An arbitration agreement is in writing where it is contained in:

    1. a document signed by the parties;

    2. an exchange of letters, telex, facsimile or other means of communication which provide a record of the agreement; or

    3. an exchange of statement of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other.

    There are no specific wording required, but there must be a clear and unambiguous intention to arbitrate and there is no restriction on either present or future disputes.

  8. 8.Arbitrability
    Are any types of dispute non-arbitrable? If so, which?

    Yes, there are some issues that are non-arbitrable, among which include certain disputes concerning consumer claims, criminal offences, labour or employment grievances, intellectual property and any such other matter which is contrary to public policy.

  9. 9.Third parties
    Can a third party be bound by an arbitration clause and, if so, in what circumstances? Can third parties participate in the arbitration process through joinder or a third-party notice?

    Generally a third party is not bound by an arbitration clause because they are not a party to it. However there are several circumstances where they can be made a party to the arbitration. For instance, if the third party is a guarantor to the arbitration agreement, or the contract has been novated to a third party. The tribunal may allow for one or more third parties to be joined in the arbitration upon the application of a party and the written consent of the third parties, so long as the third parties are party to the arbitration agreement.

  10. 10.Consolidation
    Would an arbitral tribunal with its seat in your jurisdiction be able to consolidate separate arbitral proceedings under one or more contracts and, if so, in what circumstances?

    Pursuant to section 40(1) of the Arbitration Act 2005, an arbitral tribunal may consolidate arbitration proceedings with other arbitration proceedings. The arbitral tribunal may only consolidate arbitration proceedings if the parties agree to confer such power to the arbitral tribunal - failing which, the arbitral tribunal has no power to consolidate arbitration proceedings.

  11. 11.Groups of companies
    Is the “group of companies doctrine” (or any other method of piercing the corporate veil) recognised in your jurisdiction?

    The group of companies doctrine is recognised under Malaysian law as a method for piercing the corporate veil. This is as enunciated by Salleh Abbas FJ in the case of Hotel Jaya Puri Berhad v National Union of Hotel, Bar & Restaurant Workers & Anor [1980] 1 MLJ 109.

  12. 12.Separability
    Are arbitration clauses considered separable from the main contract?

    Yes, pursuant to article 16(1) of the New York Convention, an arbitration clause is considered to be a separate agreement detached from the main contract and is therefore treated as an agreement independent of other terms of the contract. Hence if the main contract is found to be null and void, the arbitration agreement remains valid (section 18(2) of the Arbitration Act 2005).

  13. 13.Competence-competence
    Is the principle of competence-competence recognised in your jurisdiction? Can a party to an arbitration ask the courts to determine an issue relating to the tribunal’s jurisdiction and competence?

    Yes, the principle of competence-competence is recognised under Malaysian law. When a party to an arbitration proceeding requests the court to determine an issue relating to the tribunal’s jurisdiction and competence, the courts will stay court proceedings and refer the matter to arbitration based on the existence of a valid and enforceable arbitration agreement.

  14. 14.Drafting
    Are there particular issues to note when drafting an arbitration clause where your jurisdiction will be the seat of arbitration or the place where enforcement of an award will be sought?

    The drafting of the arbitration agreement must be done to make sure that it achieves clarity and certainty as to the parties’ intentions and also to avoid unnecessary and expensive disputes. There are no specific requirements as to the drafting of the agreement but are several points that need to be taken into consideration:

    1. there should be a clear reference to arbitration;

    2. the seat of arbitration should be specified;

    3. choice of the proper law should be indicated;

    4. the agreement should indicate the applicable procedural laws and rules;

    5. how and by whom the arbitral tribunal is to be consulted; and

    6. privacy and confidentiality.

  15. 15.Institutional arbitration
    Is institutional international arbitration more or less common than ad hoc international arbitration? Are the UNCITRAL Rules commonly used in ad hoc international arbitrations in your jurisdiction?

    Institutional international arbitrations are more common than ad hoc international arbitration in Malaysia and the most popular institutional international arbitrations are the KLRCA arbitrations and Malaysian Institute of Arbitrators arbitrations. The KLRCA administers most of its cases under its own KLRCA Rules, the latest edition of which was revised in 2010. International arbitration may also be carried out under ad hoc rules, and the KLRCA is able to administer arbitrations under any rules agreed to by parties, such as the UNCITRAL rules.

  16. 16.Multi-party agreements
    What, if any, are the particular points to note when drafting a multi-party arbitration agreement with your jurisdiction in mind? In relation to, for example, the appointment of arbitrators.

    Article 10 of the KLRCA Rules provides that where there are three arbitrators to be appointed and there are multiple parties as claimant or as respondent, the arbitrator shall be appointed by the parties jointly unless it was agreed otherwise with regards to the method of appointment of arbitrators.

    17. Commencing the arbitration

  17. 17.Request for arbitration
    How are arbitral proceedings commenced in your jurisdiction? Are there any key provisions under the arbitration laws of your jurisdiction relating to limitation periods of which the parties should be aware?

    Section 23 of the Arbitration Act 2005 provides that unless otherwise agreed by the parties, the commencement date of arbitral proceedings shall be on the date in which a request in writing for that dispute to be referred to arbitration is received by the respondent. Further, the request for arbitration has the same effect on the running of limitation periods in court proceedings. This is as stated in the case of Penta-Ocean Construction v Penang Development Corporations [2003] 2 AMR 331.

    18. Choice of Law

  18. 18.Choice of law
    How is the substantive law of the dispute determined? Where the substantive law is unclear, how will a tribunal determine what it should be?

    The substantial laws are determined by the parties; the parties have the first option to choose the rules of substantial laws that apply to the disputes. The parties can choose the applicable substantive law and they have full autonomy in agreeing on this issue, which overcomes possible restrictions such as substantial connection with the country of the chosen law.

    If the substantial law is unclear or where the parties fail to designate the determination of the applicable law, the Tribunal will make the determination of the applicable law in accordance with the conflict of laws rules. The Tribunal in deciding the applicable substantive law will infer from the circumstances the system of law with which the transaction has its closest and most real connection.

    19. Appointing the tribunal

  19. 19.Choice of arbitrators
    Does the law of your jurisdiction place any limitations in respect of a party’s choice of arbitrator?

    In Malaysia, there are no limitations placed on who may be appointed as an arbitrator, the parties are free to choose their arbitration tribunal (section 13(1) of the Arbitration Act 2005).

  20. 20.Foreign arbitrators
    Can non-nationals act as arbitrators where the seat is in your jurisdiction or hearings are held there? Is this subject to any immigration or other requirements?

    In Malaysia, the Arbitration Act 2005 provides for the freedom of parties in choosing an arbitral tribunal. Section 13(1) of the Arbitration Act 2005 states that no person shall be precluded by reason of nationality from acting as an arbitrator.

  21. 21.Default appointment of arbitrators
    How are arbitrators appointed where no nomination is made by a party or parties or the selection mechanism fails for any reason? Do the courts have any role to play?

    Usually the appointment of arbitrator is made by an agreement of the parties in dispute. However, if the parties fail to appoint or there is no nomination made by the party, the power of appointment is exercisable by a third party known as an appointing authority provided it was stated in the arbitration agreement. In Malaysia, usually, the party in dispute may apply to the director of the Kuala Lumpur Regional Centre for Arbitration (KLRCA) for the appointment of arbitrator as provided in section 13 of the Arbitration Act 2005. Furthermore, section 13 of the Arbitration Act 2005 also provides power to the High Court to appoint the arbitrator upon the application made by the party for such appointment in the event the director of the KLRCA is unable or fails to appoint.

  22. 22.Immunity
    Are arbitrators afforded immunity from suit under the law of your jurisdiction and, if so, in what terms?

    In Malaysia, the arbitrators enjoy statutory immunities for the acts and omissions done by them in discharging their function as an arbitrator as been stated under section 47 of the Arbitration Act 2005. However, such immunity does not apply if it can be shown that such act or omissions are done in bad faith.

  23. 23.Securing payment of fees
    Can arbitrators secure payment of their fees in your jurisdiction? Are there fundholding services provided by relevant institutions?

    In Malaysia, arbitrators can secure payment of their fees. Usually, the parties in dispute and the arbitrator will enter into an express agreement with regards to the fees. In addition, certain arbitrator institution such as Kuala Lumpur Regional Centre for Arbitration (KLRCA) sets particular scale fees of the arbitrator. Furthermore, the Malaysian Institute of Arbitrators Arbitration Rules 2000 Edition also provides a specific schedule of fees of the arbitrators.

    24. Challenges to arbitrators

  24. 24.Grounds of challenge
    On what grounds may a party challenge an arbitrator? How are challenges dealt with in the courts or (as applicable) the main arbitration institutions in your jurisdiction? Will the IBA Guidelines on Conflicts of Interest in International Arbitration generally be taken into account?

    In Malaysia, section 14(3) of the Arbitration Act 2005 provides that an arbitrator can be challenged only in circumstances that give rise to justifiable doubts as to their impartiality or independence or if the arbitrator does not possess the necessary qualifications agreed by the parties. Furthermore, arbitrator also may be challenged on the ground of lack of jurisdiction as provided in section 18(3) of the Arbitration Act 2005. Moreover, the arbitrator also may be challenge on the ground that there is conflict of interest and the IBA Guidelines on Conflicts of Interest in International Arbitration also relevant as it provides guidelines as to what constitute conflict of interest. The objecting party should make the challenge within 15 days after becoming aware of the constitution of the tribunals or of the grounds for challenge towards the arbitrator himself. If such challenge fails, the party may make such challenge to the court.

    25. Interim relief

  25. 25.Types of relief
    What main types of interim relief are available in respect of international arbitration and from whom (the tribunal or the courts)? Are anti-suit injunctions available where proceedings are brought elsewhere in breach of an arbitration agreement?

    In Malaysia, section 19 of the Arbitration Act 2005 empowered the arbitral tribunal to order security for costs, discovery of documents, interrogations and the preservation, interim custody, or sale of any property forming part of the subject matter of the dispute. Such interim order may be registered in the High Court as an award and enforced accordingly. However, application for other interim relief such as injunctions must be made to the High Court.

  26. 26.Security for costs
    Does the law of your jurisdiction allow a court or tribunal to order a party to provide security for costs?

    Section 19 of the Arbitration Act 2005 empowered the arbitral tribunal to order security for costs.

    27. Procedure

  27. 27.Procedural rules
    Are there any mandatory rules in your jurisdiction that govern the conduct of the arbitration (e.g. general duties of the tribunal and/or the parties)?

    In Malaysia, the parties are given the widest discretion to agree on any procedure that they prefer as long that such procedures are consistent with the public policy of Malaysia. However, section 20 of the Arbitration Act 2005 stipulates that the parties in the arbitration proceedings must be treated with equality and each party must be given a full opportunity of presenting his case. Moreover, section 8 provides that if the arbitral tribunal appoints an expert, it must give the parties the opportunity to cross-examine the expert at hearing, and the parties must be given an opportunity to present their own expert witness. Furthermore, section 21(3) of the Arbitration Act 2005 also provides the power of the arbitral tribunal which includes the power to determine the admissibility, relevance, materiality and weight of any evidence, order the giving of security for costs and order the discovery and production of documents.

  28. 28.Refusal to participate
    What is the applicable law (and prevailing practice) where a respondent fails to participate in an arbitration?

    Where a respondent fails to participate, the arbitral tribunal may continue the arbitral proceedings and render the award on the basis of the existing findings, unless the default is sufficiently excused.

  29. 29.Admissible evidence
    What types of evidence are usually admitted, and how is evidence usually taken? Will the IBA Rules on the Taking of Evidence in International Commercial Arbitration generally be taken into account?

    Section 21(3)(a) of the Arbitration Act 2005 allows the arbitral tribunal determine the admissibility, relevant, materiality and weight of any evidence. In practice, subject to the parties agreeing otherwise, the arbitral tribunal may decide whether and to what extent they should be oral or written submission. In determining the admissibility of evidence, the IBA Rules on the Taking of Evidence in International Commercial Arbitration is also relevant as it provides specific procedures in admitting the evidence.

  30. 30.Court assistance
    Will the courts in your jurisdiction play any role in the obtaining of evidence?

    In Malaysia, section 29 of the Arbitration Act 2005 provides that the party in dispute may apply to the High Court for assistance in taking evidence with the approval of the arbitral tribunal. Such assistance includes an order for attendance of witness to give evidence or order to produce documents on oath or affirmation before an officer of the High Court or other person including the arbitral tribunal.

  31. 31.Document production
    What is the relevant law and prevailing practice relating to document production in international arbitration in your jurisdiction?

    An arbitrator may order either party to make discoveries of documents or to answer interrogatories on oath. However, he cannot order discovery against third parties as his jurisdiction is necessarily limited to the parties themselves. Furthermore, article 3 of the IBA Rules on the Taking of Evidence in International Commercial Arbitration requires the party to submit all relevant documents to the other party and the arbitral tribunal. The same procedure is also applied in Malaysia.

  32. 32.Hearings
    Is it mandatory to have a final hearing on the merits?

    The arbitral tribunal must conduct at least one oral hearing on the merits where one party so requests unless they agreed it to be otherwise. This requirement follows from the right to be heard.

  33. 33.Seat or place of arbitration
    If your jurisdiction is selected as the seat of arbitration, may hearings and procedural meetings be conducted elsewhere?

    Hearings and other procedural meetings can be held wherever the arbitral tribunal thinks fit, except where the parties have stipulated otherwise (section 22 of the Arbitration Act 2005).

    34. Award

  34. 34.Majority decisions
    Can the tribunal decide by majority?

    In an arbitral proceedings with more than one arbitrator, the decision of the arbitral tribunal shall be made by a majority of all it members unless the parties agreed otherwise, as stipulated under section 31 of the Arbitration Act 2005.

  35. 35.Limitations to awards and relief
    Are there any particular types of remedies or relief that an arbitral tribunal may not grant?

    An arbitrator may award any remedies subject to the absence of any documents or contrary; express limitation in the Arbitration Act 2005; and the possibility of enforcement. The basis of this jurisdiction was that arbitrators were authorised to exercise every right and award any discretionary relief which could have been awarded by any court of law. Thus, it has been recognised that an arbitrator has implied powers to rectify deeds and order contribution. However, parties are free by agreement to vary the power exercisable by the arbitrator.

  36. 36.Dissenting arbitrators
    Are dissenting opinions permitted under the law of your jurisdiction? If so, are they common in practice?

    Dissenting opinions are permitted, but occur only very rarely for practical reasons.

  37. 37.Formalities
    What, if any, are the legal and formal requirements for a valid and enforceable award?

    In order to be valid and enforceable, an award must be made in writing, shall be signed by the arbitrator, state the date of their execution and place of the arbitral proceedings and it shall be serve upon the parties to the arbitration. Furthermore, the arbitral tribunal also must state the reasons on which the award is based, unless the parties agreed that no reasons are to be given (section 33 of the Arbitration Act 2005).

  38. 38.Time frames
    What time limits, if any, should parties be aware of in respect of an award? In particular, do any time limits govern the interpretation and correction of an award?

    Section 35 of the Arbitration Act 2005 imposes a time limit of 30 days after receiving of such award for a party to request such award to be corrected in terms of any error or to give an interpretation of a specific point or part of the award unless the parties has agreed for any other period. In order to do so, the party must serve notice to the other party of his intention and the arbitral tribunal must make the correction or give the interpretation within 30 days of the receipt of the request if it thinks it is justified to do so. Furthermore, the arbitral tribunal himself also may correct any typographical error in the award on his owns initiative within 30 days of the date of award.

    39. Costs and interest

  39. 39.Costs
    Are parties able to recover fees paid and costs incurred? Does the “loser pays” rule generally apply in your jurisdiction?

    Parties are able to recover fees paid and costs incurred and it is completely the discretion of the arbitrator to award such cost between the parties as provided under section 44 of the Arbitration Act 2005. Generally, the “loser pays” rule or cost follow event applied in Malaysia where the successful party should be entitled for his costs.

  40. 40.Interest on the award
    Can interest be included on the principal claim and costs? Is there any mandatory or customary rate?

    There is no procedural right to interest. Where Malaysian substantive laws applies, it only deals with awards of interest from the date of award to date of realisation. It does not put any limit on the quantum of interest nor does it specifically outlaw compound interest. It is therefore wider than Order 42 Rule 12 of the Rules of High Court 1980 which provides that every judgment debt to carry interest from the date of judgment at a maximum rate of 8 per cent per annum unless a higher rate has been agreed between the parties, in which it shall be included in the judgment.

    41. Challenging awards

  41. 41.Grounds for appeal
    Are there any grounds on which an award may be appealed before the courts of your jurisdiction?

    Section 36 of the Arbitration Act 2005 provides that an award made by the arbitral tribunal is final and binding upon the parties to the arbitration agreement. However, section 37(1) of the Arbitration Act 2005 sets out particular circumstances in which a party to the arbitration may make an application to the court for the arbitration award to be set aside. These circumstances include a party to the arbitration being under some incapacity, the arbitration agreement not being valid under the substantive law selected, improper notice of arbitrator appointment or arbitral proceedings that prevented a proper presentation of the case, the dispute not being covered by the arbitration agreement and the composition of the tribunal not being in compliance.

  42. 42.Other grounds for challenge
    Are there any other bases on which an award may be challenged, and if so what?

    Section 37(2) of the Arbitration Act 2005 provides that the High Court also may set aside the award of the tribunal if it finds that the dispute is not one that is capable of settlement by arbitration or that the award made was contrary to the public policy. For instance, if the making of the award was induced or affected by fraud or corruption, or a breach of natural justice occurred during the arbitral proceedings.

  43. 43.Modifying an award
    Is it open to the parties to exclude by agreement any right of appeal or other recourse that the law of your jurisdiction may provide?

    Generally it cannot be done. The right of appeal to the parties shall not be excluded as it will make the agreement null and void. However if both parties have agreed that the law of our jurisdiction (Malaysian law) shall not be the recourse to appeal against the award, then the agreement shall be followed.

    44. Enforcement in your jurisdiction

  44. 44.Enforcement of set-aside awards
    Will an award that has been set aside by the courts in the seat of arbitration be enforced in your jurisdiction?

    Sections 39(1)(a)(vii) of the Arbitration Act 2005 specifically provide that the Malaysian courts may refuse to enforce a foreign arbitration award where the arbitral award in question has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made.

  45. 45.Trends
    What trends, if any, are suggested by recent enforcement decisions? What is the prevailing approach of the courts in this regard?

    Section 38 (1) of the Arbitration Act 2005 provides for recognition of arbitral awards made in respect of domestic arbitration or an award from a foreign state. However, the Malaysian law has limited the enforcement of awards from a foreign state to awards from a state which is a signatory to the New York Convention, whether or not that state has implemented reciprocal arrangements. See Malaysian Court of Appeal case of Sri Lanka Cricket v World Sport Nimbus Pre Ltd [2006] 2 CLJ 316

  46. 46.State immunity
    To what extent might a state or state entity successfully raise a defence of state or sovereign immunity at the enforcement stage?

    There is no specific provision in the Arbitration Act 2005 for a defence of state or sovereign immunity to an enforcement of arbitral award.

    47. Further considerations

  47. 47.Confidentiality
    To what extent are arbitral proceedings in your jurisdiction confidential?

    Rule 10 of the Rules for Arbitration of the Kuala Lumpur Regional Centre for Arbitration (as revised in 2010) provides that all proceedings of arbitrations will be private and confidential unless the parties to the arbitration agree otherwise. Furthermore, confidentiality extends also to any award, except where its disclosure is necessary for purposes of implementation and enforcement.

  48. 48.Evidence and pleadings
    What is the position relating to evidence produced and pleadings filed in the arbitration? Are these confidential? Is there any way that they might be relied on in other proceedings (whether arbitral or court proceedings)?

    Rule 10 of the Rules for Arbitration of the Kuala Lumpur Regional Centre for Arbitration (as revised in 2010) provides that evidence produced and pleadings filed will be private and confidential, unless the parties to the arbitration agree otherwise.

  49. 49.Ethical codes
    What ethical codes and other professional standards, if any, apply to counsel and arbitrators conducting proceedings in your jurisdiction?

    In Malaysia, arbitrators under the KLRCA will be subject to the KLRCA’s code of ethics. Furthermore, the Model Law and the Arbitration Act 2005 also requires arbitrators to be impartial and independent. Failure to adhere to these two qualities could lead to a challenge of arbitrators under article 12 of the Model Law and also section 14(3) of the Arbitration Act 2005. Moreover, given that a large portion of arbitrators are lawyers, the Legal Profession Act and Legal Profession (Practice and Etiquette) Rules 1976 would also apply to these arbitrators. Arbitrators of other professions would be subject to the ethical rules and professional conduct rules applicable to their respective professions as well.

  50. 50.Procedural expectations
    Are there any particular procedural expectations or assumptions of which counsel or arbitrators participating in an international arbitration with its seat in your jurisdiction should be aware?

    Foreign counsel or arbitrators arbitrating at the KLRCA may be required to adhere to the KLRCA’s code of ethics.

Law Business Research Ltd

87 Lancaster Road, London
W11 1QQ, UK
Queen's Award logo International Bar Association logo American Bar Association strategic partner logo

Copyright © 2013 Law Business Research Ltd. All rights reserved. | http://www.lbresearch.com

87 Lancaster Road, London, W11 1QQ, UK | Tel: +44 207 908 1188 / Fax: +44 207 229 6910

http://www.globalarbitrationreview.com | editorial@globalarbitrationreview.com